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I always enjoy listening to Michael Campbell’s Moneytalks show on Saturday mornings. He’s very good. However, today I heard an ad from an investment advisor who is a regular advertiser. The advisor said with great confidence and authority, “now is not the time to buy and hold”.

I couldn’t disagree more.

If you buy great companies at fair prices there should be no reason to sell. In fact if there’s a general market sell off that causes a downturn in the price of a great company it’s not a trigger to sell, it’s a trigger to buy more!

Benjamin Graham, Warren Buffett’s mentor, says in his book The Intelligent Investor, “the real money in investment will have to be made – as most of it has been in the past – not out of buying and selling but of owning and holding securities, receiving interest and dividends and increases in value.”

Now that is good advice!

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The master who trained the master.

Class 1 and 2 Truths

June 15, 2013

I am reading The Snowball by Alice Schroeder. It is an excellent read about Warren Buffett.

Buffett’s mentor Benjamin Graham had a concept called Class 1 and Class 2 Truths.

A Class 1 Truth is an absolute truth, like the intrinsic value of a company. A Class 2 Truth becomes a truth by conviction, or what people believe to be the worth of a company.

If enough people believed a company to be worth X then it was worth X until enough people thought otherwise. All of this did not affect a company’s intrinsic value.

Where a Class 2 Truth view of a company’s value is less than its Class 1 Truth there may be an opportunity for substantial gains to the investor.

In other words, buy companies that are trading at less than they’re really worth.

Harder said than done!